Star witness: Quattrone knew

LuisaBeltran

NEW YORK (CBS.MW) -- Frank Quattrone, the once powerful Credit Suisse First Boston investment banker, knew that the government's investigation into CSFB had become more serious when he told co-workers to comply with a company policy that resulted in document destruction, an ex-colleague testified Friday.

David Brodsky, former general counsel for CSFB, testified Friday that he e-mailed Quattrone on Dec. 3, 2000, that inquiries, which included subpoenas from the Securities and Exchange Commission and the National Association of Securities Dealers regulators, were causing "extreme concern."

On Dec. 3, Brodsky and Quattrone exchanged e-mails regarding the investigation. At 5:40 p.m, Brodsky told Quattrone that he should not pass along information regarding the grand jury subpoenas.

Testifying before a packed courtroom, Brodsky said he was worried that conversations among bank employees would lead to a leak. The grand jury requests were a danger to CSFB and to Quattrone's business, Brodsky said.

"Mainly, Frank Quattrone's business was threatened," he said. "I wanted him to know about it because he is the senior leader of that group."

Brodsky, who did not speak to Quattrone on the phone, assured him that the firm was not under indictment.

Still, on Dec. 4, Richard Char, one of Quattrone's deputies, told staffers in an e-mail to clean out their files regarding IPOs. A day later, Quattrone sent a message that included text from the prior day's missive. The now infamous Quattrone e-mail said: "Having been a key witness in a securities litigation case in south Texas I strongly advise you to follow these procedures."

New York-based CSFB is the investment banking unit of Credit Suisse Group
CSR, -7.00%
In January 2002, CSFB paid $100 million to settle charges arising from the government's investigation into IPO allocation. CSFB did not admit or denying guilt

Well-paid

In day five of the Quattrone trial, prosecutors have claimed that Quattrone, the star investment banker who helped usher some of the most famous IPOs of the late 1990s, including Amazon
AMZN, +2.01%
and Netscape, believed the government's probe threatened his livelihood. At one point, during morning testimony Friday, prosecutor David Anders introduced information detailing Quattrone's compensation in 1999 and 2000.

In 1999, Quattrone received a base salary of $250,000, which was paid to all managing directors at CSFB. However, his total incentive performance bonus came to more than $34 million. The next year, Quattrone again received $250,000 but his total compensation quadrupled to more than $120 million.

Prosecutors have claimed that Quattrone tried to block the government's investigation of CSFB. The investment bank during the late 1990s helped underwrite some of the most groundbreaking IPOs, including VA Linux, which priced at $30 a share but soared to more than $300 in its first day of trading.

Attorney John Keker, Quattrone's lead defense attorney, has tried to show that the CSFB banker did not know the government's request for documents was directed at the tech group. Keker did not have a chance to cross-examine Brodsky on Friday. Quattrone is expected to take the stand in his own defense next week.

Just days before

At issue in the trial are Quattrone's actions on Dec. 5, 2000. On that day, the star investment banker sent his message to staff telling them to comply with CSFB's document retention policy.

In earlier testimony Friday, Linda Jackson, who was part of the technology investment banking group during December 2000, said that once she received the e-mail from Quattrone she began destroying documents.

"Anything that shouldn't be in the deal file I discarded," she testified.

The NASD regulatory began looking at CSFB's allocation of initial public offerings in spring 2000 and made a request for documents. In May, the SEC made similar request.

But the federal investigation of CSFB took a turn for the worse in September when the SEC transferred its probe to the enforcement division, Brodsky said. Quattrone, who was head of CSFB's technology investment banking division at that time, was told of the change in status, Brodsky said.

In late November, Brodsky was informed that a federal grand jury had issued a subpoena to CSFB and eight executives. On Nov. 28, Brodsky and Kevin McCarthy, director of CSFB's U.S. litigation unit, met with the Justice Department officials from the Southern District of New York and asked them to drop the investigation.

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